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Why Your Business Needs Flexible Loans

If your business has severe cash flow rhythms, it can be hamstrung by traditional lending practices. Many small-knowledge businesses today are "eat what you kill" businesses, in that they are continually hunting for food to continue their lives. Consulting-type businesses, service businesses, some technology-based businesses, and creative businesses tend to fall into this category. If they're not bringing in business, their bottom line starts to shrink consideraby. When they land a contract, that line swells again.

By Tony Wanless /

Financial institutions need to recognize the need for flexible small business loans.

If your business has severe cash flow rhythms, it can be hamstrung by traditional lending practices.

Many small-knowledge businesses today are “eat what you kill” businesses, in that they are continually hunting for food to continue their lives.

Consulting-type businesses, service businesses, some technology-based businesses, and creative businesses tend to fall into this category. If they’re not bringing in business, their bottom line starts to shrink consideraby. When they land a contract, that line swells again.

Of course, this kind of existence is horrifying to most lenders, who favour predictability – especially when it comes to loan repayments. 

Reality of small business loans

Unfortunately, most business loans, which are often tied to the business owner’s personal assets (ie. a home), don’t conform to most knowledge-business financial rhythms. These kind of businesses often have a hard time predicting their cash flow on a short-term basis. You’re up one month, down the next. At the end of the year, it usually – but not always – works out. When it does, you do well; when it doesn’t, you scramble or go under. 

Naturally, there’s a constant tension between lenders and businesses. One tends to be patterned and inflexible; the other is so used to living flexibly it’s like breathing. 

Flexible lending

So it’s interesting that a lending institution has finally come up with a consumer mortgage product that provides this flexibility – to an extent. 

 
Coast Capital Savings credit union’s “You’re The Boss” mortgage is aimed at consumers who want to pay off their mortgages faster. But its features would also benefit small business owners who want to use their homes as business slush funds. 
 
The mortgage product allows customers to pay off their mortgages faster without penalty by making prepayments of any amount, any time, up to 30 per cent of the principal. Customers can also make scheduled extra payments and skip a monthy payment or equivalent. 
 
It’s a novel feature that would be of great interest to business owners who fund their businesses with the equity in their homes. All the extra payments can be accessed (with a minimum of $500) whenever the customer need funds, even as it goes toward paying down the mortgage. If you have a couple of good months, you stick some extra money into paying down your mortgage, and if you have a couple of down ones, you take it back out. 
 
Many businesses use a line of credit to provide this kind of flexibility. But sometimes that’s not enough. And a line of credit doesn’t help pay down your mortgage. 
 
While there may be some wrinkles in the new mortgage product that haven’t been announced, it generally sounds far more flexible than anything I’ve encountered. 
 
Usually, I don’t like to endorse products, but if you’re operating in the new world of business – which has many, sometimes severe, changes in cash flow – you might want to check it out. Or ask your lender to match it. 
 
In your world, you need flexibility above all. It’s about time the financial institutions recognized it.